A bank is offering to sell certificates of deposit valued at $2,000.00.At the tn
ID: 1207575 • Letter: A
Question
A bank is offering to sell certificates of deposit valued at $2,000.00.At the tnu 01 4 years, the bank will pay $2,860.00 to the certificate owner. Based on a two-month interest period: What is the interest rate the bank is paying you each interest period? What are the nominal and effective interest rates on this certificate of deposit? You bought a $27,000.00 machine with $5,000.00 down payment and agreed to pay for the rest at 1% monthly interest for the next 5 years. What is your monthly payment? Suppose, immediately after making the 24 th payment, you decided to pay the vendor the rest of money you owe in one single payment. How much will that payment be? An used US-built car costs $3,900.00 and operating costs are 9 cents per mile. At the end of 3 years you estimate its selling price to be SI,700.00. An used foreign car costs $5,000.00 and operating costs are 8 cents per mile. At the end of 3 years you estimate its selling price to be $X. Assume you will be driving 12.000 miles per year. Determine the value of X so that the two cars are equally worth to you at i = 8%.You purchased a new 10-year bond whose face value is S5.000.00 for $$4.950.00. The bond pays (coupon rate) 8% semi-annually. You kept the bond till maturity. Write down an equation that will allow you to calculate the nominal rate-of-return on this investment. Do not calculate the rate of return. The estimated average inflation rate is 10% for the next 5 years. How much money you have to put in your bank today so that after 5 years you can withdraw $1,500.00 in 0-year dollars, i.e.. with today's purchasing powers. The bank pays an interest rate of 4%.Explanation / Answer
(1).
We will use compounding interest formula to arrive at rate of interest
Formula A=P(1+r/n)^nt
Where:
A = future value of the investment/loan, including interest
P = principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for
$2860 = $2000 (1+r/6)^6*4
r = 9%
Effective rate of interest = ($2860-$2000)/2000*100/4=10.75%
(2).
Monthly Payment = {$22000 * 0.01 *(1+0.01)^60} / {(1=0.01)^60-1} = $490
24th month payment = 14717
(3).
3900+(9*12000)/100-1700 = 5000+(8*12000)/100-X
X = 2680
(4).
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